The rise in the cost of living and the squeeze on household budgets is much
worse than the official measures suggest.

The cost of essential goods and services has rocketed by 25pc in the past five years, according to a new report by the Joseph Rowntree Foundation (JRF).

It revealed that this rate is much faster than the standard measure of inflation – recorded by the consumer price index – which increased by just 17pc.

The research found that families are having to cope with an "unprecedented erosion of household living standards" as the gap widens between the rising cost of goods and services, and their stagnant wages.

According to the report, in 2008 a single person earning £13,000 would have reached the minimum they needed to get by. if their wage had risen in line with average increases, they would now be earning £14,000 – which is roughly three thousand short of the £16,850 salary needed to cover the same basic standard of living today.

A working couple with two children will now need to earn £19,400 each in order to maintain adequate living standards, the report found, while a single parent would need earnings of around £25,600.

The report outlines the biggest financial pressures on families over the past five years. Energy costs remain the biggest tsrain with bills rising by 39pc. Childcare costs had increased over twice as fast as inflation at 37pc, with public transport costs almost one third more expensive with a 30pc increase.

Food (24pc) and rent in social housing (26pc) had also risen since 2008 according to the foundation's calculations.

Despite the Government's raise of the personal tax allowance which has somewhat eased the strain on households, the positive impact of this is being overshadowed by the effects of spending cuts and the rising cost of essentials, argues the JRF report.

Katie Schmuecker, policy and research manager at JRF, said: "Cuts to benefits and tax credits – especially cuts to support for childcare – combined with stagnant wages and the rising cost of essentials is resulting in an unprecedented erosion of living standards.

"The Government has introduced measures like raising the personal tax allowance to try and help, but any positive effect is more than cancelled out. If the Government wants to help these struggling families, they have to make sure that different policies join up rather than contradict each other."

Donald Hirsch, author of the report, said there is a "growing gulf" between what people expect their living standards to be, and their ability to achieve it.

He added: "This year's report demonstrates how the price of a basket of goods needed for an acceptable living standard has risen far faster than average inflation.

This has combined with low pay increases to create a widening gap between income and needs."

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